DTN's Five-Year Seasonal Index chart indicates that the nearby canola future has tended to move from roughly 97% of the seasonal index in January to a seasonal high of approximately 106% of the seasonal index in June. This is indicated by the blue line on the attached chart, as measured on the primary vertical axis. The red line shows the trend in the front-month contract as it relates to the seasonal trend, as measured against the secondary vertical axis.
The blue line would indicate a modest upward potential over the months of May and June according to activity during the past five years. A look at the average gain for the July contract over the past five years (2011 to 2015) would indicate an average monthly gain of $6.62 per metric ton in May, ranging from a loss of $24.90/mt to a gain of $28.70/mt, while increasing in three of the five years.
As well, the average monthly gain seen on the July contract in June over the past five years was $10.26/mt, also increasing in three of five years, ranging from a monthly loss of $32.50/mt to a monthly increase of $69.80/mt.
While the seasonal index is one watched in DTN analysis as one of six factors affecting the movement in commodity prices, it is viewed as non-conclusive as a factor impacting price direction on its own.
Other factors to watch:
-- Technical resistance at $500/mt. The May contract has failed to test $500 after coming as close as $1.10/mt away in Thursday's trade. The July contract has failed to close above $500 after trading higher in two of the last three sessions.
-- The soybean market is rallying on noncommercial or speculative buying interest, with the weakening May-over-July spread closing at minus 10 cents today, a bearish commercial response. The canola market, on the other hand, is supported by both commercial and noncommercial buying interest, with the nearby May-over-July spread narrowing $1.80/mt on Monday to end at minus $2.40, the narrowest this spread has been in 2016 and can be viewed as bullish based on the cost of carry calculations.
-- The current National Average Basis for U.S. soybeans is much weaker than both the five- and 10-year averages, while is continuing to diverge from historical averages which normally tend to strengthen this time of year. A quick look at Saskatchewan Agriculture's weekly canola bids over the past five years would indicate that last week's bid was just $1/mt wider than the five-year average for the same week, while is the strongest seen in three years for that week.
With both crush and export demand on track to reach the current AAFC targets as of the latest data (10 million metric tons of exports and 8.1 mmt of crush, both records), combined with lingering dryness in the western Prairies and Statistics Canada's forecast for a decline in planted area in 2016, the market will tell us in time where we go from here.
The next Statistics Canada report is May 6, focusing on the Stocks of principal field crops as of March 31.
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Cliff Jamieson can be reached at email@example.com
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